Every investor desires to purchase stocks that somehow got lost in the shuffle for one reason or another, creating in them the feeling that they have what others can not obtain. As most know, an industry on the cusp of an upturn can be the source of such great companies. On that note, some of the most attractively priced equities at this time appear to be those of companies that provide networking infrastructure equipment to telecom providers. Selloffs have created opportunities in that market, where cyclicality stems from the periodical upgrading of services. For instance, the rollout of 4G LTE and other next-generation offerings should continue to support demand for equipment. Certainly, further increases in datacom network usage will require enhanced wireless networks and greater bandwidth, despite the lull in spending that occurred during 2012.
The Leaders
Industry stalwart Cisco Systems, Inc. (NASDAQ:CSCO) looks to be a strong gainer this year and beyond, given the bounceback in activity. Plus, the positive earnings report turned in by Juniper Networks, Inc. (NYSE:JNPR) may well be a harbinger of what’s to come. Moreover, there are several beaten down stocks in the group that could hold substantial upside if the upturn persists.
The way Cisco is improving its performance is through sales of products into growth categories, including Video, Wireless, and Data Center. In fact, its revenues from those businesses climbed 30%, 38%, and 61%, respectively in the latest quarter. We anticipate demand for these services to remain upside drivers for some time going forward. Juniper, meantime, is experiencing a material advance in its routing operation that seems on par to continue through 2013 at least, as capital expenditures by telecoms turns upward. JNPR is benefiting from wireless, wireline, cable and content related outlays. Putting it all together, the environment seems ripe for industry profit gains, as evidences by trends at the two largest players.
Some Others to Consider
Moving along to the lesser-known in the sector, one company that got lost in the mix has been Alcatel Lucent SA (NYSE:ALU). Alcatel has been operating in the red, but may well be positioned for a recovery, in light of its sizable share of markets such as Internet Protocol architecture and terrestrial optic networking products that upgrade and enhance traditional communications systems. These factors should help offset its difficulties in the wireless market, where its product line has probably become antiquated. Still, signs that a rebound is in the works are noticeable and the shares, accordingly, might be a bargain.
Like ALU, Tellabs, Inc. (NASDAQ:TLAB) has been unprofitable of late. Nevertheless, a slow earnings recovery is being fueled partly by cost restructuring. On the top line, a bounceback could result from the revamping of product lines and the overall upturn in equipment demand. The same holds true for Ciena Corporation (NASDAQ:CIEN). That company is potentially well-situated for a good year in 2013, after suffering losses in 2012.
The Stocks
Readers of this blog are commended for taking heed in the suggestions I’ve made and looking into the individual stocks on their own. The rather volatile telecom equipment sector may well be ready to gain ground. Cisco shares are appealing at this juncture, and the rest of the industry may well follow suit. The smaller stocks may well hold even greater upside under the favorable conditions that we expect. Selloffs may well prove to have been excessive in some cases. The timing of telecom system upgrades could provide a boost to profits and encourage investments to increase. If so, the telecom networking industry could be one of the best performing during this year and over the long term timeframes.
The article How Telecom Equipment Stocks Can Bolster you Portfolio originally appeared on Fool.com and is written by Damon Churchwell.
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